Official Report of the Grand Committee on the Pensions Bill (Hansard, 13 October 2004)

HL Deb 13 October 2004 vol 665 cc57-136GC 57GC

§ (Tenth Day)

§ Wednesday, 13 October 2004.

§ The Committee met at half past three of the clock.

§ [The Deputy Chairman of Committees (Lord Geddes) in the Chair.]

§ The Deputy Chairman of Committees (Lord Geddes)
I remind the Committee that in the case of a Division in the Chamber I will adjourn the Grand Committee for approximately 10 minutes. I also advise Members of the Grand Committee—I am sure that they know it already—that any interventions or speeches should be made standing.

§ Clause 252 [Increase in age at which short service benefit must be payable]:

§ On Question, Whether Clause 252 shall stand part of the Bill?

§ Lord Higgins
We resume our deliberations, beginning with Clause 252, following the four very hard-working and intensive sittings which interrupted the Recess, working under extremely difficult conditions. I feel bound to say that I hope that experiment will not be repeated. If there is only one lesson to be learnt, it is that the task of maintaining security in Parliament—and preventing the kind of the invasion of the Commons which we had—when the entire area is really a working building site is extremely dangerous. We were very fortunate that the outcome was no more serious than it was.

§ Since we last met there have been two important developments. The new Secretary of State appeared in his role following three previous Secretaries of State—none of whom were outstanding successes—and he began by making various statements and giving interviews and so on. For example, one report in the Sunday Times on 26 September stated, "No crisis yet says new pensions boss". The argument seemed to be that the crisis was 15 or 20 years ahead. That must have been rather heartbreaking to read for the people that we will be trying to help later on—for example, on the financial assistance scheme.

§ There is a crisis now—and it is growing. That has been spelt out in the Turner report which, no doubt, noble Lords have been studying very carefully over the past 24 hours or so. I think it is disgraceful that we did not have a Statement on that report. It was on the front page of every paper and on every television programme last night. It is an indication of the contempt in which the Prime Minister, in particular, and the Government generally tend to hold Parliament 58GC that we did not have a Statement on the report that was issued and which was described by the new Secretary of State only a few hours ago as perhaps the most important report we have had almost in living memory.

§ It is a very important report. It is extremely thorough and detailed. The crucial thing about it is that it brings to the public's attention what the problems are, although it tends only to deal with the long-term ones and not the ones with which we are primarily concerned in this particular piece of legislation. It creates a rather strange situation because I gather that the Government are proposing to do nothing about it until after the election. Apparently, they will go into the election with no policy to deal with these problems at all and say, "Vote for us. We will tell you what we are going to do afterwards".

§ But, be that as it may—

§ The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Hollis of Heigham)
Now we get on to the more controversial issues.

§ Lord Higgins
We now get on to the more controversial issues. Indeed, the noble Baroness will be glad to know that I am going to go straight to deal with Clause 252 stand part. The Turner report states that the options are, effectively, to be poorer, to pay higher taxes, to get more savings and to retire later. That brings me to Clause 252, which is concerned with an increase in the age at which short service benefit must be payable.

§ The clause refers to Section 71 of the Pension Schemes Act 1993 on basic principle as to short service benefit, which I have here, and indicates that a change shall be made from the existing situation so that in future the short service benefits must—and I stress "must"—be payable as from an age no greater than the age of 65 or, if a member's normal pension age is greater than 65, the normal pension age.

§ In the context of the discussion by Turner about whether we should have a higher pensions age and so on, I am not clear exactly what is meant in Clause 252 by the "normal pension age". Perhaps the noble Baroness can tell us exactly what the import of this is and why it is necessary to change the Pension Schemes Act 1993 definition to the new definitions included in the clause.

§ On the face of it, if we are going to discuss whether pension ages should be raised and so on, it seems strange that this change is made. I have to confess that I am not even clear whether this raises the level or not compared with the 1993 Act proposals. But no doubt the noble Baroness can help us with that. It seems to be strangely triggered by the discussions in the press in the past few days.

§ Lord Hunt of Wirral
I intervene to support strongly the comments made by my noble friend Lord Higgins. Yesterday's preliminary report—that is how it is expressed—of the Pensions Commission revealed in some detail what we had all really feared, which is that 59GC this country faces a pensions crisis. Through their raid on private pension funds, the Government have served only to make matters worse.

§ There are certain provisions in the Bill, such as Clause 252, that are technically necessary and rather urgent, but we are faced with continuing our scrutiny of a Bill that serves only to be over-complicated yet ineffective at the same time. I cannot recall a Bill that has been so substantially amended by the same group of Ministers who introduced it in the first place. The homework was not done. I strongly agree with my noble friend Lord Higgins that Adair Turner's report should have been accompanied by a ministerial Statement and a proper and vigorous debate.

§ Pensions policy is not the particular province of any generation, nor is it the exclusive province of any political party. Surely, we should now redirect our efforts towards the production of a lasting cross-party consensus. That is essential. The continuous barrage of government amendments to which we have been subjected has stretched the spirit of co-operation and consensus on these Benches to breaking point. As it stands, I cannot see how the Bill will save a single firm or a single pension fund. Indeed, it has now become so complicated that it may achieve the opposite.

§ To summarise, I say to the Minister that her Bill has now become too complex, too oblique, and too vulnerable to interpretation and judicial activism. Speaking as a solicitor, I am filled with trepidation about the way in which the Bill will be interpreted. My only contribution is to ask Ministers to go back to the drawing board on a substantial part of the Bill and to start again. Fine, there are certain technical amendments, such as the clause that we are now debating, that need to go through, but there is a huge mass of provisions that need to be thought through once again. Cannot Ministers take the opportunity before it is too late to come back to Parliament with something more considered and relevant early in the new Session, which is, after all, only a matter of weeks away?

§ It was my privilege yesterday to listen to Jane Kennedy and Alan Johnson talking about the future and what the Government propose to do. The purport of what they said was that we needed to have a rethink of our policy on pensions. Certainly, the columns today and the editorials urge that on us. Why is the Minister ignoring the huge debate that is going on outside this place? Is it not about time that we tackled the real issues?

§ Lord Lea of Crondall
It is understandable that the noble Lord, Lord Higgins, should wish to make some reference at this stage to the important report of the Turner commission. I have known Adair Turner a long time, as other noble Lords have, from when he was director-general of the CBI. The report is an outstanding contribution to a debate that is quintessentially long-term if ever there were one. That does not mean that we should all start to debate it now, but a debate at a suitable stage on the report in the House would be very good.

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§ The noble Lord, Lord Hunt, goes a further mile and—if I may say so—somewhat opportunistically says that the Bill achieves the opposite, so there are immediate ramifications for its relevance. That is going far too far. Nothing in what Adair Turner said removes the necessity of getting on with all the major reforms in the Bill. Indeed, until we have dealt with some of the immediate questions in a Bill such as this—notably, coming from a trade union background as I do, the whole question of the compensation fund and so on—we will not get people to address the issue. That issue will not be dealt with on a party political basis.

§ I very much take the point made by the noble Lord, Lord Hunt, that we need a consensus on the Turner report. The word "consensus" has been out of fashion for a long time in this country, but all the major parties—I include employers and trade unions, which is my background—need to find a way of thinking through the equation between retirement age, the problem that our savings ratio in this country has fallen to about 5 per cent instead of the 10 to 12 per cent that is the average in Europe, the financing of pensions and the question of compulsion on workers and employers. We need consensus on those questions.

§ Whether the immediate lump sum flashed around the newspapers from the report—£50 billion to £60 billion—is the right way into the debate or not, clearly a huge contribution is made by the Turner report. However, trying to be objective about it, I can see no way in which it does other than distinguish the immediate issues such as are in the Bill from those that must be debated as soon as is convenient in the Adair Turner report.

§ Lord Oakeshott of Seagrove Bay
I support what the noble Lord, Lord Lea, said. I do not propose to make any sort of Second Reading speech now, but want to put on record that we warmly welcome the analysis in the Turner report and the very clear conclusions to which anyone who has eyes can see that it points to. If I can out Adair, I should say that I served with him on the economic affairs committee of the SDP in the early 1980s. It is not surprising that he has therefore come up with just the sort of sensible and interesting report that one would expect.

§ A serious point is being made. The report should not delay proceedings on the Bill. It is a useful Bill so far as it goes. We should not talk about scrapping it and going back to the drawing board; we are here constructively to try to improve and amend it and get it to do what it can do. However, I ask the noble Baroness to assure us that there will be an opportunity at an early stage to have time to debate the Turner report, as has been suggested from both sides. It is, to a simple extent, separate from this Bill.

§ Baroness Turner of Camden
I wish to add a word to what was said by my noble friend Lord Lea. As we all know, one of the things that has come out of the Adair Turner report very strongly is that people are not saving enough. One reason why they do not do so is the lack of a feeling of security. One thing that the Bill attempts to do is to cope with that feeling of insecurity, by providing some kind of fund that gives people a 61GC basis for feeling that their occupational pension scheme, if they contribute to it, has some sort of security backing. All Members of the Committee support that concept.

§ Baroness Hollis of Heigham
I should have predicted, in a way in which I did not, that we would start with a query on this matter. Like others, I found the Adair Turner report fascinating, often because it made connections that I had not made before. A tiny one is that, as one moves from DB to DC schemes, so people are likely to work longer. That may pick up some of the points about people dropping out of the labour market at a relatively early age. It is a sideways move that I should have made and had not quite in that form, so I have found the report extremely rich and valuable.

§ The point is that it is a report. I may sound bureaucratic, but it is a report of a non-departmental body, which is not conventionally prefigured by a Statement in the House. There is nothing to stop the Opposition asking for a PNQ. I understand that it has not done so. The Opposition in the other House—in my view well timed—has opted for an opposition debate today on pensions. But if this House—bluntly—prefers to debate 800 foxes over 8 million pensioners, then so be it. Some of us do not.

§ 3.45 p.m.

§ Obviously, we shall deal with the report and so on. I cannot give any undertakings—that is for the usual channels—whether or not there is any time allocated to a big pensions debate. After the Queen's Speech, we shall resume our Wednesday afternoon debates. There will be ample opportunity for any of the three parties to initiate a pensions debate when we have finished the Bill. I cannot really be more helpful than that. My understanding is that it would not necessarily be conventional, and certainly we have not had a request to take an unconventional response.

§ I hope that we do not come under too fierce an attack about what the Bill does. When I wrote books, I always used to get impatient when the reviewer criticised me for not having written a different book. I always got very cross with that. The noble Lord, Lord Hunt of Wirral, criticised us for not having a different Bill altogether. As my noble friend Lady Turner of Camden rightly said, the Bill is designed to do a couple of things. It is meant to inform people's awareness of what the future state of their pension provision will be. Part 4, in terms of informed choice, should go some way to doing that, along with some of the other subsequent announcements made by my Secretary of State about enrolment and so on.

§ It is clear that the publicity attached to the Adair Turner report probably has done more about that than anything we will do for the time being. None the less, we speak as one on this. First, the Bill is designed to make people realise that they need to save and what the shortfall is, given any assumptions they may have on what replacement earnings they would like in retirement and what they will actually get. We seek to do that in the 62GC Bill. I do not think we should underestimate it. We try to do it in a personalised way, whereas Adair Turner's report is about heightened awareness.

§ As my noble friends eloquently said, the second reason people why have been reluctant to save is the worry about security. The volatility of the stock market and so on has also encouraged fears in that direction. The third problem—if government is at fault, may I say that it is probably the actuarial profession which has failed to build the figures in properly—is growing longevity. That has also perhaps given us a false complacency—I include myself—about what is going to happen.

§ We should all take responsibility for this. As my Secretary of State said, there is no magic bullet that the Government can suddenly fire. We will all have to face up to the choices that Adair Turner has identified. We either work later, including working longer beyond the age of 55, or we have to save more or face increased taxes or to accept a reduced standard of living in retirement. As he rightly says, any forward solution is going to have to be a mix between those.

§ However, what the Bill seeks to do to a more limited extent is something important, and I hope as a result that we shall not get too sweeping a condemnation of that. Without informed choice and without the Pension Protection Fund, the state of defined benefit schemes would be even less attractive. They are certainly attractive to employees. They will be even less attractive to employers and employees in the future.

§ As for the changes in the build-up of the Bill that the noble Lord, Lord Hunt, criticised us for, he understands the situation perfectly well. The Bill came across as a framework, but most of the amendments that have arisen in this House have come in part because of some of the concerns expressed by noble Lords, including the opposition parties. For example, a major chunk of change has been moral hazard. That was run at the other end, quite rightly, all around the House, and it is because the pension Ministers took that on board that the Committee is being asked to scrutinise those clauses.

§ We have had, for example, the issue of pension liberation. That came up at the last moment, when we were dealing with those very nasty court cases in Oxford. Noble Lords thought it was right that we should do that. We are going on to do something on pension sharing, which again the Committee would want us to do. We have, for example, details of insolvency practitioners and how to get appeals right from their notices, subject to European law, which in no sense was an encumbrance on insolvency practitioners.

§ The noble Lord, Lord Hunt, pressed us in that area. We are responding. I am now being criticised by him in the nicest and most pleasant way for responding to the concerns he raised at Second Reading. It is unreasonable to criticise the Government for listening and then to criticise us for actually responding with amendments to that effect.

§ We have responded on member-nominated trustees, something which came from the TUC, on scheme wind-ups and the limited price indexation. The noble 63GC Lord at Second Reading made a very powerful point on LPI not just for DB schemes but for DC schemes. We are coming forward with responses to that. We are building it into the Bill. Now he tells me that that is not good enough; we have a Bill that we are actually constructing in the Lords. It is because the Committee is taking the Bill seriously and it is because I on behalf of the Government am taking the Committee's views seriously that we are adding the clauses.

§ I hope that I do not sound tetchy, but I think that it is slightly graceless of noble Lords opposite to criticise us for responding to the concerns raised by them, which we are taking seriously. I hope that on reflection the noble Lord, Lord Hunt of Wirral, will in future cast his criticisms of the Government in a more inclusive way. I have said enough on that.

§ There may be some misunderstanding about the clause. Certainly when I was first being briefed on it, I misunderstood the intentions. Perhaps I may say what it seeks to do, as that is not as obvious as it might be. The clause amends the legislation that applies to members who leave a scheme before pension age—early leavers. We are not talking about ill health, but early leavers; people who become deferred pensioners, in effect. Where a scheme's normal pension age is before 60, pensions for early leavers are payable no later than the age of 60. That applies to a limited number of schemes where normal pension age is lower than age 60 because of the nature of the work; for example, firefighters and the police.

§ We are not saying that police and firefighters do not get their pensions until the age of 60, but that someone who has perhaps been a police officer or a firefighter for three or five years 15 or 20 years before and has gone on to another job, and whose health is therefore not impaired, should draw his pension in the normal way—in other words, not necessarily in terms of the scheme rules for existing police or firefighters but for broader scheme rules that early leavers' pensions should be paid in the normal course of events.

§ We do not think that early leavers in that situation should need to be paid before the age of 60. In other words, we are making a distinction between when one would pay a serving police officer who had done his 30 years or whatever in the police force and was now entitled to draw his pension and someone who had perhaps served four or five years. We do not think that they should be able to draw their pension at the same time as the serving police officer who does need the particular consideration, given the onerous nature of his job.

§ In those cases, the pension is currently payable later than the normal pension age but no later than the age of 60. Clause 252 raises that age limit to 65, in line with general public policy of extending the working life and raising the public service pension age in respect of future service. I hope that with that explanation, the Committee will accept the clause.

§ Lord Higgins
I think we are grateful for that explanation. I shall pick up two points only on the 64GC earlier remarks. I have read most of the three volumes now, but not all of it. However, I notice that in the foreword the report says: We want to make clear the facts on which our analysis is based, enabling experts and interested parties to point out where we are wrong, or where we have missed key issues". On the perhaps over-optimistic assumption that the writers of the report read our debates in the same way that we read their reports, let me say something. Certainly by implication the report criticises the Chancellor's obsession with moves towards means-testing and the effect that that has on savings, but I cannot for the moment find any reference to the £50 billion a year tax grab as a result of the change in ACT. If so, that seems to be a missed key issue, one that has been rather extraordinarily overlooked.

§ Lord Lea of Crondall
I think that that the noble Lord, Lord Higgins, meant to refer to the figure of £5 billion rather than £50 billion.

§ Lord Higgins
It depends on how many years you calculate. At any rate, it is £5 billion a year.

§ Baroness Hollis of Heigham
I am trying to find the page, but I am fairly sure that it states somewhere else that this is irrelevant in comparison with the £350 million that has been wiped out in pension schemes on the stock market. However, I do not have a decent index to the report, so I cannot locate where I read that point.

§ Lord Higgins
It would be astonishing if the report did not make any reference to the £5 billion, although it may be that I have not yet found it.

§ I make only one other party political point. The noble Baroness has said that it is extraordinary that the Opposition wanted to debate 800 foxes rather than 8 million pensioners. The Hunting Bill is not an opposition Bill, it is a government Bill. The Government want to debate hunting; we would be entirely happy to have no more discussion about hunting and for the Bill to disappear. The noble Baroness has that slightly wrong.

§ Turning to the clause, I understand that the "normal pension age" means the scheme's normal pension age, not a normal pension age in any other way. I make the point because I think that the general public would understand the expression "normal pension age" to be the age at which the state pension becomes payable. Perhaps the noble Baroness, who has rightly said that she is responding to points made by the Opposition, will consider whether the drafting could be marginally improved.

§ Baroness Hollis of Heigham
The noble Lord is absolutely right. We shall make sure that the drafting is as unambiguous as it should be.

§ Clause 252 agreed to.

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§ Clause 253 [Early leavers: cash transfer sums and contribution refunds]:

§ Baroness Hollis of Heigham moved Amendments Nos. 312ZB and 312ZC:

§ Page 186, line 23, leave out from "as" to end of line 35 and insert "overridden by a relevant legislative provision, (b) the relevant legislative provisions, to the extent that they have effect in relation to the scheme and are not reflected in the rules of the scheme, and

§ Page 186, line 46, at end insert— (8) For the purposes of subsection (7)—

(a) "relevant legislative provision" means any provision contained in any of the following provisions—

(i) Schedule 5 to the Social Security Act 1989 (equal treatment for men and women);
(ii) this Chapter or Chapters 2, 3 or 4 of this Part of this Act or regulations made under this Chapter or any of those Chapters;
(iii) Part 4A of this Act or regulations made under that Part;
(iv) section 110(1) of this Act;
(v) Part 1 of the Pensions Act 1995 (occupational pensions) or subordinate legislation made or having effect as if made under that Part;
(vi) section 31 of the Welfare Reform and Pensions Act 1999 (pension debits: reduction of benefit);
(vii) any provision mentioned in section 292(2) of the Pensions Act 2004;

(b) a relevant legislative provision is to be taken to override any of the provisions of the scheme if, and only if, it does so by virtue of any of the following provisions—

(i) paragraph 3 of Schedule 5 to the Social Security Act 1989;
(ii) section 129(1) of this Act;
(iii) section 117(1) of the Pensions Act 1995;
(iv) section 31(4) of the Welfare Reform and Pensions Act 1999;
(v) section 292(1) of the Pensions Act 2004."

§ On Question, amendments agreed to.

§ On Question, Whether Clause 253, as amended, shall stand part of the Bill?

§ Lord Higgins
I shall speak briefly. Some six and a half pages of the Bill are given over to early leavers, cash transfers and so forth. I have no particular point to raise, but it is not clear why this is in the Bill since it does not seem to be related to the main purposes of the legislation. Perhaps the noble Baroness could tell us briefly what this clause seeks to do.

§ Baroness Hollis of Heigham
I am pleased that the noble Lord has raised this because it is a rather important change dealing essentially with vesting rights. Noble Lords will know that most schemes impose a period of service known as the vesting period. Where an employee member leaves a scheme before the end of the vesting period, he or she will not have vested rights retained in the scheme. Usually, all that happens is that people take the cash out and go. They do so because schemes do not want to take on the extra administrative burden.

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§ Clause 253 makes provision for those members so that those who leave a scheme after three months' service, for example, will be able, not so much to have their rights vested, but to take their rights with them into a new scheme, including the employer's contribution. In terms of the financial benefit, let us take the case of someone who leaves a defined contribution scheme with an employee contribution of 3 per cent of pensionable earnings and an employer's contribution of 4.5 per cent of pensionable earnings. If they leave after one year with pensionable earnings of £15,000, they may take a cash refund—that is the case at the moment—which will be worth £360 after tax has been deducted. However, if they arrange for a cash transfer sum to go into the next scheme, taking with them the employer's contribution, they will be able to transfer £1,200. That is the virtue of it. It really aids job mobility and particularly helps women.

§ I could go on in greater detail, but that is the whole point. Basically, we are ensuring that people who leave a scheme after three months can take the value of the scheme as though it had been vested with them into the new scheme.

§ 4 p.m.

§ Lord Higgins
I am most grateful for that explanation.

§ Clause 253, as amended, agreed to.

§ Clauses 254 and 255 agreed to.

§ Clause 256 [Voluntary contributions]:

§ On Question, Whether Clause 256 shall stand part of the Bill?

§ Lord Higgins
I am beginning to wonder whether the value of a clause is inversely related to its length. This is a brief clause, concerning voluntary contributions. As I understand it, it omits Section 111 of the Pension Schemes Act 1993, which relates to the requirement for schemes to provide facilities for members to pay additional voluntary contributions, generally known, I think, as AVCs.

§ I speak with some passion on the matter, having at one stage been chairman of a pension fund that had met the requirements of the Act and had introduced facilities for members of the scheme to take out additional voluntary contributions. Unfortunately, like so many others, acting on what was supposed to be good advice, we put the money into Equitable Life. It took many hours and an enormous amount of legal advice and expense to follow the traumas of Equitable Life, trying either to get some sense out of the company itself or to help members of the scheme who had invested in Equitable Life AVCs. It was a disaster area.

§ The real problem was that, as trustees—albeit an expert trustee board—we could not give any advice to our members about what to do because we were not registered financial advisers. On balance, I think that, although we all want to encourage people to take out further contributions and save more, the obligation on 67GC schemes to provide such facilities without the ability to give advice when something goes wrong creates a difficult situation.

§ Baroness Hollis of Heigham
I agree with the noble Lord. The reason for the change is that, in 1986, occupational schemes had to have a facility for members to make AVCs because tax laws did not generally allow members of an occupational pension scheme to make contributions to a personal pension in respect of the same period and source of employment. That is changing; from 2001, individuals can contribute to an OP scheme and a personal pension at the same time, if their earnings are below £30,000. The forthcoming tax changes in the Finance Bill will remove those restrictions altogether. The compulsion on employers to offer AVCs is no longer necessary, because there are alternative vehicles in which people can, if they wish, amplify their pension by running a personal pension alongside their OP.

§ The clause is part of that deregulation. It is no longer necessary to place a statutory requirement on every scheme to offer AVCs. We expect many employers to continue to offer that facility, but, given that individuals can now make their own choice to go into a parallel scheme to top up an otherwise reduced pension, the requirement is no longer necessary. We are freeing the system up.

§ Clause 256 agreed to.

§ Clause 257 [Payments made by employers to personal pension schemes]:

§ Lord Skelmersdale moved Amendment No. 312A:

§ Page 191, line 12, after "must" insert "except in prescribed circumstances"

§ The noble Lord said: It might be convenient if, in moving the amendment, I refer also to Clause 258. The Explanatory Notes, incidentally, contain a misprint in the pre-penultimate line of paragraph 793. The paragraph says: where a contribution under the direct payment arrangements has not been paid by its due date, and the trustees or managers have reasonable cause to believe that the failure is likely to be of material significance to the Regulator in the exercise of any of its functions, then they must, within a reasonable period after the due date, give notice of the late or non-payment to the Regulator and the employee". Should not that be "the employer"? That is my first question. In that case, which employee is it? It follows.

§ The Explanatory Notes go on to state, very helpfully: Under clause 84 the Regulator must issue codes of practice on the meaning of 'material significance' in relation to the exercise of its functions, and on the meaning of 'reasonable period'";. Nowhere, however, can I find any description of where notice is not required, except of course in Clause 258. That clause refers not to personal pension schemes, but to occupational pension schemes. It has been put to us that employers' payments into personal pension schemes should be treated in exactly the same way in both clauses. I beg to move.

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§ Baroness Hollis of Heigham
I am assured that "employee" is the right word—there is no misprint. The notes state that, they must, within a reasonable period … give notice of the late or non-payment to the Regulator and the employee", because it is the employee's money. I presume that it means any employee so affected.

§ Lord Skelmersdale
With the greatest respect, I am afraid that that still does not make sense. The whole clause is headed: Payments made by employers to personal pension schemes". While I was speaking, the noble Baroness gave me the impression that "employee" might be the right word and was intended, so my supplementary question at that point was, "Which employee?".

§ Baroness Hollis of Heigham
Any employee who is affected. The notes state that, where a contribution under the direct payment arrangements has not been paid by its due date, and the trustees or managers have reasonable cause to believe that the failure is likely to be of material significance … they must", notify the "Regulator and the employee". In other words, we are dealing with where the employer may not only pay into a pension, but be the vehicle for the employee's payments into the pension. It is important that the regulator as well as the employee is notified of that.

§ Let me follow the matter up and write to the noble Lord, in case there is some issue about which he is concerned that I am missing. His substantive point is essentially on why we seem to have powers in Clause 258 that we do not have in Clause 257. We do not need them, because the regulator will have the flexibility to do exactly what he asks already. Is that enough, or does the noble Lord wish me to explain?

§ Lord Skelmersdale
Could the Minister explain?

§ Baroness Hollis of Heigham
OK. Clause 257 amends Section 111A of the Pension Schemes Act 1993, which deals with the monitoring of payments made by employers to personal pension schemes. It introduces greater flexibility, for reasons that we all understand.

§ We have discussed already that one of the problems for OPRA was that it was littered with a large number of late payments—136,000, of which fewer than 2 per cent warranted a preliminary investigation, and fewer than half of 1 per cent went on to have a detailed investigation. That was a waste of effort and activity. As we have said throughout, we seek for the regulator to identify and work with trustees and so on where there are areas of risk, rather than to have reports on everything that is two or three days late. Most of those reports were minor or trivial failures where payment was a day or two late. The more flexible approach introduced by the clause will enable the regulator to focus his efforts on those late payments where there is or may be a real risk to members' benefits.

§ Unlike the existing legislation, the provisions do not provide for a power to prescribe the circumstances when a late-payment report does not need to be sent to 69GC the regulator. That is because, under the new approach, the regulator will have the flexibility to do that for itself. The regulator will set out in its code of practice the circumstances in which a report should or should not be made. It is therefore not necessary to take a power as provided for by the amendment.

§ I am happy to continue down that path, but we have considered the issue raised. I am assured that the regulator already has powers and that any words such as those in the amendment would be superfluous, in terms of the working of the clause.

§ Lord Skelmersdale
I am grateful to the noble Baroness for that long, detailed explanation. I took in only about three quarters of it, so I shall have to read it most carefully.

§ I still think it somewhat odd that circumstances can be described under Clause 258 and not under Clause 257. It would be helpful to everyone to know from the very beginning where they stood, rather than waiting for the regulator to issue the code of practice. It goes without saying that a raft of regulations, statutory instruments, codes of practice and goodness knows what will flow from the Bill. I take the noble Baroness's point that she investigated the requirement for having prescribed circumstances in Clause 257 and has come to the conclusion that it is not necessary. If I come to the same conclusion, of course it will not be necessary to move an amendment on Report. I beg leave to withdraw the amendment.

§ Amendment, by leave, withdrawn.

§ Clause 257 agreed to.

§ Clause 258 agreed to.

§ Baroness Hollis of Heigham moved Amendment No. 312B:

§ After Clause 258, insert the following new clause—

§ "WINDING UP

§ (1) For section 73 of the Pensions Act 1995 (c. 26) (preferential liabilities on winding up) substitute—

cc69-71GC

73 PREFERENTIAL LIABILITIES ON WINDING UP 910 words

cc71-2GC

73A OPERATION OF SCHEME DURING WINDING UP PERIOD 699 words

cc72-136GC

73B SECTIONS 73 AND 73A: SUPPLEMENTARY 32,302 words